If you've declared bankrupcty, you now have a second chance to have a clean life... credit-wise, that is; don't blow it! You have to strategize so you can make the most of this "second chance." Here are five important steps to take:
Send Your Guilt Away
First of all, misery loves company. In 2010 1.53 million Americans declared bankruptcy. Statistically, 13% of Americans have considered it, which is no wonder with this prolonged recession we're enduring. It's important to realize that if you keep a negative mind-set about yourself you won't be able to move forward.
Medical expenses are the cause of 75% of the bankruptcies in America, and 65% of those people had insurance. (It is important to make sure you can cover your deductible or obtain additional coverage if needed.) The point is, many times the cause of bankruptcy is beyond our control; send the guilt away.
Reflect and Regroup
After bankruptcy, like many other devastating events, we need to look back at the situation and see what could have been done differently. You'll discover this by asking yourself how you got into the situation to begin with.
You shouldn't take the journey alone. Find support groups to help you along the way. Perhaps you won't want to tell your boss, or anyone else at work, for that matter, but groups at your religious affiliation should be there to help. You may even have a friend or two who've been in this situation, or know someone who has and they can commisurate with you.
Create A Realistic Budget And Stick To It!
It's what I tell everyone who starts out in life so they won't get into bankruptcy to begin with. Spend less than you earn, and the only way you'll know that is to track what you spend. Yes, it takes discipline, but you already have discipline if you get up every morning and go to work.
It's important to pay off any debt not discharged from the bankruptcy and simultaneously save for an emergency fund in a liquid account. I suggest 15% of your gross income goes toward your debt and your emergency fund; once your emergency fund is equal to the number of months' expenses it would take to find a job should you lose your current one, then it's adequate. Next, take that 15% and save it for retirement.
Get A Credit Card To Rebuild Credit
Many banks will offer you a secured card. You may have to put $500 in an account, which will give you a $500 limit on the card. This will allow you to charge up to $500; make sure you pay it off every month. Make sure you don't get a card with high fees and stay away from a card that won't report to the bureaus; after all, you want to create a good payment history and have the bureaus know about it. If you pay off yoru balance consistently, some credit cards may increase your credit limit without having you deposit more money to secure it.
Fact Or Fiction?
Here are some bankruptcy myths to bust:
- You can't get a home loan. Truth: you can be in the middle of Chapter 13 proceedings and get an FHA loan.
- You can't get a credit card. Truth: 96% of consumers were offered a new credit card within one year of declaring bankruptcy.
- You can't get a loan. Truth: you can receive a reasonable rate to finance a car or get a loan.
- Your credit score will always suck. Turth: you can have a credit score in the 700's six months after bankruptcy is discharged; just make sure you have no late payments. HOWEVER, if you do have late payments after bankruptcy, you'll be hammered; the bureaus will think you haven't learned your lesson.
Do you know of someone who has declared bankruptcy or is thinking about it?